Asked by Madeline Suderman on May 13, 2024
Verified
If the marginal propensity to save (MPS) is 1/8,the value of the simple spending multiplier is:
A) 8.
B) 1/8.
C) 2.
D) 1/2.
E) 4.
Marginal Propensity
The tendency of an individual or household to spend an additional dollar of income on consuming goods and services.
Simple Spending Multiplier
The ratio of a change in output to a change in autonomous spending that caused it, illustrating the impact of fiscal policy on total economic output.
- Analyze and understand the ramifications of the simple expenditure multiplier in terms of the marginal propensity to consume and to save.
Verified Answer
GF
Grace FeldmanMay 16, 2024
Final Answer :
A
Explanation :
The simple spending multiplier is calculated as 1/(1-MPC) or 1/MPS. Given MPS is 1/8, the multiplier is 1/(1/8) = 8.
Learning Objectives
- Analyze and understand the ramifications of the simple expenditure multiplier in terms of the marginal propensity to consume and to save.
Related questions
If the Marginal Propensity to Save (MPS)is 0 ...
The Smaller the Marginal Propensity to Save,other Things Constant,_____ ...
If Investment Increases by $100 And,as a Result,gross Domestic Product ...
If Households Save $40 Billion Less at Each Level of ...
When Government Purchases Increase,the Spending Multiplier Indicates the _____ ...